$21 Trillion of Unauthorized Spending …

… by US Government Discovered by Economics Professor

https://www.rt.com (December 16 2017)


(c) Lee Jae Won (c) Reuters

The US government may have misspent $21 trillion, a professor at Michigan State University (MSU) has found. Papers supporting the study briefly went missing just as an audit was announced.

Two departments of the US federal government may have spent as much as $21 trillion on things they can’t account for between 1998 and 2015. At least that’s what Mark Skidmore, a Professor of Economics at MSU specializing in public finance, and his team have found.

They came up with the figure after digging the websites of departments of Defense (DoD) and Housing and Urban Development (HUD) as well as reports of the Office of the Inspector General (OIG) over summer.

The research was triggered by Skidmore hearing Catherine Austin Fitts, a former Assistant Secretary in the HUD in the first Bush administration, saying the Inspector General found $6.5 trillion worth of military spending that the DoD couldn’t account for. She was referring to a July 2016 report by the OIG, but Skidmore thought she must be mistaking billion for trillion. Based on his previous experience with public finances, he thought the figure was too big even for an organization as large as the US military.

“Sometimes you have an adjustment just because you don’t have adequate transactions … so an auditor would just recede. Usually, it’s just a small portion of authorized spending, maybe one percent at most. So for the Army, one percent would be $1.2 billion of transactions that you just can’t account for”, he explained in an interview with USAWatchdog.com earlier this month.

After discovering that the figure was accurate, he and Fitts collaborated with a pair of graduate students to comb through thousands of reports of the OIG dating back to 1998, when new rules of public accountability for the federal government were set and all the way to 2015, the time of the latest reports available at the time. The research was only for the DoD and the HUD.

“This is incomplete, but we have found $21 trillion in adjustments over that period. The biggest chunk is for the Army. We were able to find thirteen of the seventeen years and we found about $11.5 trillion just for the Army”, Skidmore said.

The professor would not suggest whether the missing trillions went to some legitimate undisclosed projects, wasted or misappropriated, but believes his find indicates that there is something profoundly wrong with the budgeting process in the US federal government. Such lack of transparency goes against the due process of authorizing federal spending through the US Congress, he said.

Skidmore also co-authored a column on Forbes, explaining his research.

The same week the interview took place the DoD announced that it will conduct its first-ever audit. “It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar”, Comptroller David Norquist told reporters as he explained that the OIG has hired independent auditors to dig through the military finances.

“While we can’t know for sure what role our efforts to compile original government documents and share them with the public has played, we believe it may have made a difference”, Skidmore commented.

Interestingly, in early December the authors of the research discovered that the links to key document they used, including the 2016 report, had been disabled. Days later the documents were reposted under different addresses, they say.

https://www.rt.com/usa/413411-trillions-dollars-missing-research/

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Pentagon Fails First Audit

Neocons Demand More Spending!

by Ron Paul

http://www.unz.com (November 19 2018)

The Pentagon has finally completed its first ever audit and the results are as many of us expected. After spending nearly a billion dollars to find out what has happened to trillions in unaccounted-for spending, the long look through the books has concluded that only ten percent of all Pentagon agencies pass muster. I am surprised any of them did.

Even the Pentagon is not surprised by the failure of the audit. “We failed the audit. But we never expected to pass it”, said Deputy Secretary of Defense Patrick Shanahan. Can we imagine any large US company subject to the prying eyes of the IRS being so unfazed by the discovery that its books have been so mishandled?

As with all government programs, but especially when it comes to military spending, the failure of a program never leads to calls for funding reductions. The Pentagon’s failure to properly account for the trillions of taxpayer dollars shoveled in year after year only means, they say, that we need to send more money! Already they are claiming that with more resources – meaning money – they can fix some of the problems identified by the audit.

If you subsidize something you get much more of it and, in this case, we are subsidizing Pentagon incompetence. Expect much more of it.

Outgoing chairman of the House Armed Services Committee, Representative Mac Thornberry, warned against concluding that this mishandling trillions of dollars should make us hesitant to continue sending trillions more to the Pentagon. The failed audit “should not be used as an excuse for arbitrary cuts that reverse the progress we have begun on rebuilding our strength and readiness”, he said.

The neocons concur. Writing in the Free Beacon, editor Matthew Continetti (who happens to be Bill Kristol’s son-in-law) warns that now is “the wrong time to cut defense”.

But I agree with the young neoconservative Continetti. I would never support cutting a penny of defense. However, the Pentagon’s lost trillions have nothing to do with defense. That is money propping up the high lifestyles of those connected to the military-industrial complex.

Continetti and the neocons love to throw out bogeymen like China and Russia as excuses for more military spending, but in fact, they are hardly objective observers. Look at how much the military contractors spend funding the neocon publications and neocon think tanks telling us that we need more military spending! All this money is stolen from the productive economy and diverted to enrich neocon cheerleaders at our expense.

Of course, the real problem with the Pentagon and military spending, in general, is not waste, fraud, and abuse. It is not ten thousand dollar toilet seats or coffee mugs. The problem with military spending is the philosophy that drives it. If the US strategy is to maintain a global military empire, there will never be enough spending. Because there is never enough to control every corner of the globe. But if we are to return to a well-defended republic, military spending could easily be reduced by 75 percent while keeping us completely safe. The choice is ours!

(Republished from The Ron Paul Institute by permission of author or representative)

http://www.unz.com/rpaul/pentagon-fails-first-audit-neocons-demand-more-spending/

Exclusive: The Pentagon’s Massive Accounting Fraud Exposed

How US Military Spending Keeps Rising even as the Pentagon Flunks its Audit.

by Dave Lindorff

https://www.thenation.com (November 27 2018)

An aerial view of the Pentagon building in Washington. (Reuters / Jason Reed)

On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest discretionary cost center – the Pentagon receives 54 cents out of every dollar in federal appropriations – after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy Secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it”. Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial”. The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.

As Republican Senator Charles Grassley of Iowa, a frequent critic of the DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep”. In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance – except the Pentagon.

Now, a Nation investigation has uncovered an explanation for the Pentagon’s foot-dragging: For decades, the DoD’s leaders and accountants have been perpetrating a gigantic, unconstitutional accounting fraud, deliberately cooking the books to mislead the Congress and drive the DoD’s budgets ever higher, regardless of military necessity. DoD has literally been making up numbers in its annual financial reports to Congress – representing trillions of dollars’ worth of seemingly nonexistent transactions – knowing that Congress would rely on those misleading reports when deciding how much money to give the DoD the following year, according to government records and interviews with current and former DoD officials, congressional sources, and independent experts.

“If the DOD were being honest, they would go to Congress and say, ‘All these proposed budgets we’ve been presenting to you are a bunch of garbage’ “, said Jack Armstrong, who spent more than five years in the Defense Department’s Office of Inspector General as a supervisory director of audits before retiring in 2011.

The fraud works like this. When the DoD submits its annual budget requests to Congress, it sends along the prior year’s financial reports, which contain fabricated numbers. The fabricated numbers disguise the fact that the DoD does not always spend all of the money Congress allocates in a given year. However, instead of returning such unspent funds to the US Treasury, as the law requires, the Pentagon sometimes launders and shifts such monies to other parts of the DoD’s budget.

Veteran Pentagon staffers say that this practice violates Article I Section 9 of the US Constitution, which stipulates that

No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.

Among the laundering tactics the Pentagon uses so-called “one-year money” – funds that Congress intends to be spent in a single fiscal year get shifted into a pool of five-year money. This maneuver exploits the fact that federal law does not require the return of unspent “five-year money” during that five-year allocation period.

The phony numbers are referred to inside the Pentagon as “plugs”, as in plugging a hole, said current and former officials. “Nippering”, a reference to a sharp-nosed tool used to snip off bits of wire or metal, is Pentagon slang for shifting money from its congressionally authorized purpose to a different purpose. Such nippering can be repeated multiple times “until the funds become virtually untraceable”, says one Pentagon-budgeting veteran who insisted on anonymity in order to keep his job as a lobbyist at the Pentagon.

The plugs can be staggering in size. In fiscal year 2015, for example, Congress appropriated $122 billion for the US Army. Yet DoD financial records for the Army’s 2015 budget included a whopping $6.5 trillion (yes, trillion) in plugs. Most of these plugs “lack[ed] supporting documentation”, in the bland phrasing of the department’s internal watchdog, the Office of Inspector General. In other words, there were no ledger entries or receipts to back up how that $6.5 trillion supposedly was spent. Indeed, more than 16,000 records that might reveal either the source or the destination of some of that $6.5 trillion had been “removed”, the inspector general’s office reported.

In this way, the DoD propels US military spending higher year after year, even when the country is not fighting any major wars, says Franklin “Chuck” Spinney, a former Pentagon whistle-blower. Spinney’s revelations to Congress and the news media about wildly inflated Pentagon spending helped spark public outrage in the 1980s. “They’re making up the numbers and then just asking for more money each year”, Spinney told The Nation. The funds the Pentagon has been amassing over the years through its bogus bookkeeping maneuvers “could easily be as much as $100 billion”, Spinney estimated.

Indeed, Congress appropriated a record amount – $716 billion – for the DoD in the current fiscal year of 2019. That was up $24 billion from fiscal year 2018’s $692 billion, which itself was up $6 billion from fiscal year 2017’s $686 billion. Such largesse is what drives US military spending higher than the next ten highest-spending countries combined, added Spinney. Meanwhile, the closest thing to a full-scale war the United States is currently fighting is in Afghanistan, where approximately 15,000 US troops are deployed – only 2.8 percent as many as were in Vietnam at the height of that war.

The DoD’s accounting practices appear to be an intentional effort to avoid accountability, says Armstrong. “A lot of the plugs – not all, but a substantial portion – are used to force general-ledger receipts to agree with the general budget reports, so what’s in the budget reports is basically left up to people’s imagination”, Armstrong says, adding, “Did the DoD improperly spend funds from one appropriated purpose on another? Who can tell?”

“The United States government collects trillions of dollars each year for the purpose of funding essential functions, including national-security efforts at the Defense Department”, Senator Grassley told The Nation. “When unelected bureaucrats misuse, mismanage, and misallocate taxpayer funds, it not only takes resources away from vital government functions, it weakens citizens’ faith and trust in their government”.

This Pentagon accounting fraud is deja vu all over again for Spinney. Back in the 1980s, he and a handful of other reform-minded colleagues exposed how the DoD used a similar accounting trick to inflate Pentagon spending – and to accumulate money for “off-the-books” programs. “DoD routinely over-estimated inflation rates for weapons systems”, Spinney recalled. When actual inflation turned out to be lower than the estimates, they did not return the excess funds to the Treasury, as required by law, but slipped them into something called a ‘Merged Surplus Account’ “, he said.

“In that way, the Pentagon was able to build up a slush fund of almost $50 billion” (about $120 billion in today’s money), Spinney added. He believes that similar tricks are being used today to fund secret programs, possibly including US Special Forces activity in Niger. That program appears to have been undertaken without Congress’s knowledge of its true nature, which only came to light when a Special Forces unit was ambushed there last year, resulting in the deaths of four US soldiers.

“Because of the plugs, there is no auditable way to track Pentagon funding and spending”, explains Asif Khan of the Government Accountability Office, the Congress’s watchdog on the federal bureaucracy. “It’s crucial in auditing to have a reliable financial record for prior years in order to audit the books for a current year”, notes Khan, the head of the National Security Asset Management unit at GAO. Plugs and other irregularities help explain why the Pentagon has long been at or near the top of the GAO’s list of “high risk” agencies prone to significant fraud, waste, and abuse, he adds.

The Nation submitted detailed written questions and requested interviews with senior officials in the Defense Department before publishing this article. Only public-affairs staff would speak on the record. In an e-mailed response, Christopher Sherwood of the DoD’s Public Affairs office denied any accounting impropriety. Any transfer of funds between one budgetary account and another “requires a reprogramming action” by Congress, Sherwood wrote, adding that any such transfers amounting to more than one percent of the official DoD budget would require approval by “all four defense congressional committees”.

The scale and workings of the Pentagon’s accounting fraud began to be ferreted out last year by a dogged research team led by Mark Skidmore, a professor of economics specializing in state and local government finance at Michigan State University. Skidmore and two graduate students spent months poring over DoD financial statement reviews done by the department’s Office of Inspector General (OIG). Digging deep into the OIG’s report on the Army’s 2015 financial statement, the researchers found some peculiar information. Appendix C, page 27, reported that Congress had appropriated $122 billion for the US Army that year. But the appendix also seems to report that the Army had received a cash deposit from the US Treasury of $794.8 billion. That sum was more than six times larger than Congress had appropriated – indeed, it was larger than the entire Pentagon budget for the year. The same appendix showed that the Army had accounts payable (accounting lingo for bills due) totaling $929.3 billion.

“I wondered how you could possibly get those kinds of adjustments out of a $122 billion budget”, Skidmore recalled.

I thought, initially, “This is absurd!” And yet all the [Office of Inspector General] seemed to do was say, “Here are these plugs”. Then, nothing. Even though this kind of thing should be a red flag, it just died. So we decided to look further into it.

To make sure that fiscal year 2015 was not an anomaly, Skidmore and his graduate students expanded their inquiry, examining OIG reports on Pentagon financial records stretching back to 1998. Time and again, they found that the amounts of money reported as having flowed into and out of the Defense Department were gargantuan, often dwarfing the amounts Congress had appropriated: $1.7 trillion in 1998, $2.3 trillion in 1999, $1.1 trillion in 2000, $1.1 trillion in 2007, $875 billion in 2010, and $1.7 trillion in 2012, plus amounts in the hundreds of billions in other years.

In all, at least a mind-boggling $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be traced, documented, or explained, concluded Skidmore. To convey the vastness of that sum, $21 trillion is roughly five times more than the entire federal government spends in a year. It is greater than the US Gross National Product, the world’s largest at an estimated $18.8 trillion. And that $21 trillion includes only plugs that were disclosed in reports by the Office of Inspector General, which does not review all of the Pentagon’s spending.

To be clear, Skidmore, in a report coauthored with Catherine Austin Fitts, a former assistant secretary of the Department of Housing and Urban Development who complained about similar plugs in HUD financial statements, does not contend that all of this $21 trillion was secret or misused funding. And indeed, the plugs are found on both the positive and the negative sides of the ledger, thus potentially netting each other out. But the Pentagon’s bookkeeping is so obtuse, Skidmore and Fitts added, that it is impossible to trace the actual sources and destinations of the $21 trillion. The disappearance of thousands of records adds further uncertainty. The upshot is that no one can know for sure how much of that $21 trillion was, or was not, being spent legitimately.

That may even apply to the Pentagon’s senior leadership. A good example of this was Donald Rumsfeld, the notorious micromanaging secretary of defense during the Bush/Cheney administration. On September 10 2001, Rumsfeld called a dramatic press conference at the Pentagon to make a startling announcement. Referring to the huge military budget that was his official responsibility, he said, “According to some estimates we cannot track $2.3 trillion in transactions”. This shocking news that an amount more than five times as large as the Pentagon’s Fiscal Year 2001 budget of an estimated $313 billion was lost or even just “untrackable” was – at least for one 24-hour news cycle – a big national story, as was Secretary Rumsfeld’s comment that America’s adversary was not China or Russia, but rather was “closer to home: It’s the Pentagon bureaucracy.” Equally stunning was Rumsfeld’s warning that the tracking down of those missing transactions “could be … a matter of life and death”. No Pentagon leader had ever before said such a thing, nor has anyone done so since then. But Rumsfeld’s expose died quickly as, the following morning on September 11, four hijacked commercial jet planes plowed full speed into the two World Trade Center towers, the Pentagon, and a field in Pennsylvania. Since that time, there has been no follow-up and no effort made to find the missing money, either.

Recalling his decades inside the Pentagon, Spinney emphasized that the slippery bookkeeping and resulting fraudulent financial statements are not a result of lazy DoD accountants. “You can’t look at this as an aberration”, he said. “It’s business as usual. The goal is to paralyze Congress.”

That has certainly been the effect. As one congressional staffer with long experience investigating Pentagon budgets, speaking on background because of the need to continue working with DoD officials, told The Nation,

We don’t know how the Pentagon’s money is being spent. We know what the total appropriated funding is for each year, but we don’t know how much of that funding gets spent on the intended programs, what things actually cost, whether payments are going to the proper accounts. If this kind of stuff were happening in the private sector, people would be fired and prosecuted.

DoD officials have long insisted that their accounting and financial practices are proper. For example, the Office of Inspector General has attempted to explain away the absurdly huge plugs in DoD’s financial statements as being a common, widely accepted accounting practice in the private sector.

When this reporter asked Bridget Serchak, at the time a press spokesperson for the inspector general’s office, about the Army’s $6.5 trillion in plugs for fiscal year 2015, she replied,

Adjustments are made to the Army General Fund financial statement data … for various reasons such as correcting errors, reclassifying amounts. and reconciling balances between systems … For example, there was a net unsupported adjustment of $99.8 billion made to the $0.2 billion balance reported for Accounts Receivable.

There is a grain of truth in Serchak’s explanation, but only a grain.

As an expert in government budgeting, Skidmore confirmed that it is accepted practice to insert adjustments into budget reports to make both sides of a ledger agree. Such adjustments can be deployed in cases where receipts have been lost – in a fire, for example – or where funds were incorrectly classified as belonging to one division within a company rather than another. “But those kinds of adjustments should be the exception, not the rule, and should amount to only a small percentage of the overall budget”, Skidmore said.

For its part, the inspector general’s office has blamed the fake numbers found in many DoD financial statements on the Defense Finance and Accounting Service (DFAS), a huge DoD accounting operation based in Indianapolis, Indiana. In review after review, the inspector general’s office has charged that DFAS has been making up “unsupported” figures to plug into DoD’s financial statements, inventing ledger entries to back up those invented numbers, and sometimes even “removing” transaction records that could document such entries. Nevertheless, the inspector general has never advocated punitive steps against DFAS officials – a failure that suggests DoD higher-ups tacitly approve of the deceptions.

Skidmore repeatedly requested explanations for these bookkeeping practices, he says, but the Pentagon response was stonewalling and concealment. Even the inspector general’s office, whose publicly available reports had been criticizing these practices for years, refused to answer the professor’s questions. Instead, that office began removing archived reports from its website. (Skidmore and his grad students, anticipating that possibility, had already downloaded the documents, which were eventually were restored to public access under different URLs.)

Nation inquiries have met with similar resistance. Case in point: A recent DoD OIG report on a US Navy financial statement for fiscal year 2017. Although OIG audit reports in previous years were always made available online without restriction or censorship, this particular report suddenly appeared in heavily redacted form – not just the numbers it contained, but even its title! Only bureaucratic sloppiness enabled one to see that the report concerned Navy finances: Censors missed some of the references to the Navy in the body of the report, as shown in the passages reproduced here.

A request to the Office of Inspector General to have the document uncensored was met with the response: “It was the Navy’s decision to censor it, and we can’t do anything about that”. At The Nation’s request, Senator Grassley’s office also asked the OIG to uncensor the report. Again, the OIG refused. A Freedom Of Information Act request by The Nation to obtain the uncensored document awaits a response.

The GAO’s Khan was not surprised by the failure of this year’s independent audit of the Pentagon. Success, he points out, would have required “a good-faith effort from DoD officials, but to date that has not been forthcoming”. He added,

As a result of partial audits that were done in 2016, the Army, Navy, Air Force, and Marines have over 1,000 findings from auditors about things requiring remediation. The partial audits of the 2017 budget were pretty much a repeat. So far, hardly anything has been fixed.

Let that sink in for a moment: As things stand, no one knows for sure how the biggest single-line item in the US federal budget is actually being spent. What’s more, Congress as a whole has shown little interest in investigating this epic scandal. The absurdly huge plugs never even get asked about at Armed Services and Budget Committee hearings.

One interested party has taken action – but it is action that’s likely to perpetuate the fraud. The normally obscure Federal Accounting Standards Advisory Board sets the accounting standards for all federal agencies. Earlier this year, the board proposed a new guideline saying that agencies that operate classified programs should be permitted to falsify figures in financial statements and shift the accounting of funds to conceal the agency’s classified operations. (No government agency operates more classified programs than the Department of Defense, which includes the National Security Agency.) The new guideline became effective on October 4, just in time for this year’s end-of-year financial statements.

So here’s the situation: We have a Pentagon budget that a former DoD internal-audit supervisor, Jack Armstrong, bluntly labels “garbage.” We have a Congress unable to evaluate each new fiscal year’s proposed Pentagon budget because it cannot know how much money was actually spent during prior years. And we have a Department of Defense that gives only lip service to fixing any of this. Why should it? The status quo has been generating ever-higher DoD budgets for decades, not to mention bigger profits for Boeing, Lockheed, and other military contractors.

The losers in this situation are everyone else. The Pentagon’s accounting fraud diverts many billions of dollars that could be devoted to other national needs: health care, education, job creation, climate action, infrastructure modernization, and more. Indeed, the Pentagon’s accounting fraud amounts to theft on a grand scale – theft not only from America’s taxpayers but also from the nation’s well-being and its future.

As President Dwight D Eisenhower, who retired from the military as a five-star general after leading Allied forces to victory in World War Two, said in a 1953 speech, “Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed”. What would Eisenhower say today about a Pentagon that deliberately misleads the people’s representatives in Congress in order to grab more money for itself while hunger, want, climate breakdown, and other ills increasingly afflict the nation?

Correction: An earlier version of this article included a mention of $6.5 billion in plugs in 2015. In fact, as cited elsewhere in the story, the correct figure is $6.5 trillion. The article also cited an inaccurate figure for the percentage of federal tax dollars received by the Pentagon. In fact, the Pentagon receives more than half of every dollar of federal discretionary spending, not two out of every three federal tax dollars. The text has been corrected.

https://www.thenation.com/article/pentagon-audit-budget-fraud/

Pentagon Engaged in Unfathomable Financial Mismanagement

https://therealnews.com (December 05 2018)

Around the same time that auditors declared that the Department of Defense’s finances are inaudible, The Nation published an extensive exposé of just how deliberately falsified and mismanaged the Pentagon’s accounts are. We speak to the report’s author, investigative journalist David Lindorff.

 

Story Transcript

 

Greg Wilpert: It’s The Real News Network, and I’m Greg Wilpert.

About three weeks ago, the auditors who were conducting the first-ever comprehensive audit of the Defense Department announced that the audit could not be completed because too much money was simply unaccounted for. Deputy Defense Secretary Patrick Shanahan told reporters afterward, “We failed the audit, but we never expected to pass it. It was an audit on a $2.7 trillion organization, so the fact that we did the audit is substantial.”

The Pentagon’s annual budget is now over $700 billion and climbing. However, investigators who have looked into the Pentagon’s finances, such as Mark Skidmore, a professor of economics specializing in government policy at Michigan State University, found that at least $21 trillion of Pentagon financial transactions between 1998 and 2015 could not be accounted for.

Joining me now to make sense of what is going on at the Defense Department is David Lindorff. David is a contributor to The Nation, where he recently published an article with the title “Exclusive: The Pentagon’s Massive Accounting Fraud Exposed”. He also writes for Salon, London Review of Books, and Tarbell.org. Thanks for joining us today, David.

David Lindorff: Thanks for having me.

Greg Wilpert: So what is going on with the Pentagon’s accounts? Why did it fail the audit, and what exactly does failure mean?

David Lindorff: Well, it failed the audit because the numbers are so screwy that the 1200 auditors from the outside firms that were looking at it just threw up their hands and said we can’t do it. I had been warned by several people, including the head of the National Security Unit of the Government Accounting Office (GAO) that there would not be an audit because of this problem, and that it’ll be years before they can actually do an audit because the numbers are so bad that they’re dealing with. But the reason behind it is that the Pentagon has been deliberately falsifying numbers in its annual reports every year so that for years those numbers are, described by one former OIG supervising auditor, as garbage.

Greg Wilpert: So you requested, yourself, documents from the Defense Department’s Inspector General’s Office, and they sent you an annual report that was heavily redacted, with even the report’s title blacked out. And the slogan at the bottom of the report, though, which was not redacted but perhaps should have been, said “Integrity, efficiency, accountability, excellence”. Tell us about your efforts to get information for the Defense Department, what that was like, and what they said in response to your requests.

David Lindorff: Well, that document was actually posted on their website as though it was supposed to be public information. But it’s futile because everything has been blacked out. And that’s a first. The same guy who said that the budgets are garbage said it shocked him as a former supervisory audit director at the Office of Inspector General (OIG) to see them censoring the documents, because before this all the documents they would post were public record.

But you know, Mark Skidmore, Professor Skidmore at Michigan State University, who looked at all those documents between 1998 and 2015 did see all the documents. And the OIG, to its credit, was calling out these fake numbers. They would say, you know, these numbers, which sometimes totaled in the trillions of dollars, in Pentagon budgets were unsupported by any kind of ledger entries to back them up. And they would criticize the Pentagon accounting units and say, you know, you gotta do this right. This isn’t right. But nobody would ever get fired. The OIG would never recommend prosecution to the Justice Department. No supervisory people ever got called to the carpet for this kind of stuff.

So one has to assume that this was deliberate. And in fact, people that I talked to on the record [and] off said that that is exactly what is happening, that it’s a deliberate effort to make the Pentagon budgets impenetrable and inaudible.

Greg Wilpert: Now, it seems like we’re talking about hundreds of billions of dollars per year that is really unaccountable. So if much money is unaccountable, doesn’t this open the door, open wide for fraud, corruption, and maybe even embezzlement? I mean, who’s to say that that’s not what’s happening?

David Lindorff: Well, actually, it is happening. And what the on-the-record interview I had with Asif Khan, who is the head of the GAO’s National Security Asset Management Unit that monitors the budgets of the Pentagon and the CIA, and various other – the Atomic Energy Commission, or NRC, rather. You know, the various entities that have national security aspects to them. Said that the Pentagon has been for years on his and the GAO’s list of high-risk agencies for fraud, waste, and abuse.

And that, you know, think of this. The Pentagon accounts for 54 percent of every tax dollar that taxpayers and corporations pay in taxes to the government. And it is on the high-risk list for fraud, waste, and abuse. This is incredible, and nobody’s – I never even knew that. I don’t think it’s ever been reported that they’re on that list. It’s an absolute outrage, and the American people should be clamoring for action on this. But you hear nothing about it from Congress.

Greg Wilpert: Indeed, it seems to be truly amazing that the story itself has hardly been covered in the media. And if you consider that first of all not only is all this fraud possible, maybe even corruption and embezzlement, but they’re also not returning the money back to Congress as they’re supposed to be at the end of the year if they didn’t spend it. I mean, there’s so much illegality going on, it seems. Why isn’t Congress looking into this more seriously? Why isn’t the Pentagon being held accountable? What do you think?

David Lindorff: Well, it’s interesting. I mean, in the 1980s there were huge hearings into scandals that were raised by whistleblowers like Chuck Spinney, Ed Fitzgerald. You know, people that had, you know, real credibility and used their names, not just whistleblowers in, you know, behind the scenes. Called out massive fraud by the Pentagon, and the Congress responded by, you know, hearings and putting top people under oath, and uncovered a lot of fraud. And you know, heads rolled and everything. Spinney actually was put on the cover of Time magazine for his efforts.

Nothing like that goes on now. And I run it back to 2001 and the war on terror, which has had the effect of making people and the media, you know, worshipful of the military. They’re supposed to be the highest regarded part of the American government, and yet, you know, they’re they’re basically fraudsters. And they’re doing what bureaucracies always do. They’re enlarging their budgets and enlarging their power, and there is nothing particularly admirable about them.

Greg Wilpert: Okay. Well, unfortunately, we’re out of time. We’re going to leave it there for now. I was speaking to Nation contributor David Lindorff, author of the article “The Pentagon’s Massive accounting Fraud Exposed”. Thanks again, David, for having joined us today.

David Lindorff: Thanks for having me on.

Greg Wilpert: And thank you for joining The Real News Network. If you like Real News Network stories such as this one, please keep in mind that we have started our winter fundraiser and need your help of reaching our goal of raising $400,000. Every dollar that you donate will be matched. Also, keep in mind we do not accept support from governments or corporations. Please do what you can today.

https://therealnews.com/stories/pentagon-engaged-in-unfathomable-financial-mismanagement

Missing $21 Trillion Means …

… Federal Government is Lawless

by Greg Hunter

https://usawatchdog.com (December 03 2017)

Michigan State University economics professor Mark Skidmore made an astounding discovery about the finances and budgets of the US federal government earlier this year. He and a team of graduate students discovered $21 trillion missing in the federal budget going back to 1998. Dr Skidmore, who specializes in public finance, explains,

 

We know from official government sources that indicate $21 trillion is, in some way, unaccounted for. Furthermore, if we come back to the Constitution, all spending needs to be authorized by Congress. It looks to me, and I think I can conclude with a high degree of certainty, there is money flowing in, as well as out, that is unaccounted for … That’s the one thing we know from these documents, that there is $21 trillion in unaccounted funds.

 

In one example, Skidmore found a huge transfer from the Treasury Department to the Army that, again, was not authorized. Keep in mind, the Army has an approved budget of a little more than $120 billion a year. Skidmore says,

 

In this one report … there is an appendix table that indicates there was a transfer from Treasury to the Army of about $800 billion. That’s almost a trillion dollars flowing in. There is a note that says we had to do this in order to reconcile past years. That doesn’t make sense to me either because, these earlier years, you have a transfer from the Treasury of your $120 billion or $130 billion, and every year, the Army is granted the authority to spend this money in the ways they say they will. How can you get (an additional) $800 billion in and call that an “adjustment”? I tried to call and talk to the office of the Inspector General to talk to the people who helped generate these reports. I haven’t been successful, and I stopped trying when they disabled the links.

 

You heard correctly. The government cut off inspection of their own financial accounting to the public. Skidmore says,

 

I have been able to talk to a few people. I tried calling the Congressional Budget Office. I talked with somebody at the GAO, and one or two people at the Office of the Inspector General, who were generating these reports … It’s a big question in why don’t people want to look at this? I am just a blue collar economist at Michigan State University, and I am saying this does not make sense to me. Why don’t we look at this? … Some high ranking government official authorized the disabling of all the links to the key documents. We know that.

 

Dr Skidmore thinks the federal accounting of $21 trillion in missing money is crazy and far outside the realm of normal. So, is this a legitimate US national security issue? Dr Skidmore says,

 

Yeah, and that is one of the reasons I decided to look at this. How can this be, and what does this mean? If trillions of dollars are flowing in and flowing out, it appears to be outside of our Constitution and outside of the rule of law. If that is the case, that really is troubling because it suggests that there is a layer of things happening that are outside the rule of law. I know, for example, that some activities, just for the sake of protection of the people involved in national security, have to be black budget. There is always stuff like that. Usually, it’s authorized spending, and some percentage is this black budget where only a small percentage of people and some in Congress know about it, but this is way outside of that. So, I am worried about it.

 

_____

Join Greg Hunter as he goes One-on-One with Professor Mark Skidmore of Michigan State University, as he talks about $21 trillion in missing money from the US federal budget https://youtu.be/7CwpjIwwI9o.

To Donate to USAWatchdog.com Click https://usawatchdog.com/donations/.

After the Interview:

Dr Skidmore says, “If the American people don’t stand up and say this is unacceptable, nothing is going to happen. This is just wrong.”

To find out more about Dr Mark Skidmore, click http://www.econ.msu.edu/faculty/skidmore/.

To look at the documents he used to uncover $21 trillion in missing federal money, go to Solari.com and search the term “Missing Money” or simply click https://solari.com/blog/dod-and-hud-missing-money-supporting-documentation/. Dr Skidmore copied all the documents he used for research and put them on Solari.com with the permission of its founder Catherine Austin Fitts.

https://usawatchdog.com/missing-21-trillion-means-federal-government-is-lawless-dr-mark-skidmore/

How Poppy Bush’s Brother …

… “Uncle Bucky”, Made a Killing off the Iraq Wars

by Jeffrey Saint Clair

Counterpunch.org (December 04 2018)

Zero Hedge (December 05 2018)

Back in 1991, shortly after the depleted uranium-flaked dust had settled some from the first Gulf War, there was a minor tempest in the press over influence peddling by members of President George H W Bush’s family, including his son Neil and his brother Prescott, Jr. Both Neil and Prescott, neither of whom had proven to be exceptionally talented businessmen, had made millions by flagrantly trading on their relationship to the president.

Seeking to distinguish himself from his more predatory relatives, William Henry Trotter Bush, the younger brother of Bush Sr and an investment banker in Saint Louis, gave an interview to disclaim any profiteering on his own part. Indeed, he sounded downright grumpy, as if his older brother hadn’t done enough to steer juicy government deals his way.

“Being the brother of George Bush isn’t a financial windfall by any stretch of the imagination”, huffed William H T Bush.

Well, perhaps being the brother of the president didn’t generate as much business as he hoped, but having the good fortune to be the uncle of the president certainly appears to have padded the pockets of the man endearingly known to George W Bush as “Uncle Bucky”.

A few months before his selection as president, Bush’s Uncle Bucky quietly joined the board of a small and struggling Saint Louis defense company called Engineered Support Systems, Incorporated (ESSI). Since Bush joined the team, ESSI’s fortunes have taken a dramatic turn for the better. This once obscure outfit is now one of the top Pentagon contractors. Next year its revenues will top $1 billion, nearly all of it derived from defense contracts with the Pentagon or with foreign militaries financed by US aid and loan guarantees. Even sweeter, most of these contracts have been awarded in no-bid, sole source deals.

True to form, Uncle Bucky claims that ESSI’s amazing transformation has nothing to do with him or his nephew, the president.

“I don’t make any calls to the 202 (DC) Area Code”, Bush sneered to the Los Angeles Times.

Uncle Buck’s characteristic modesty was swiftly undercut by statements made by top executives at ESSI, who seemed proud that their foresight in inviting Bush on board had paid off so handsomely for all concerned.

“Having a Bush certainly doesn’t hurt”, chuckled Dan Kreher, ESSI’s vice president for industrial relations.

Uncle Bucky Bush is sixteen years younger than his brother, the former president. According to Kitty Kelley’s gripping history of the Bush clan The Family (2005), Bucky was raised “almost as an only child” by his aging parents Dorothy and Prescott Bush, the senator who traded with the Nazis. Bucky was a sensitive and precocious kid with a peculiar devotion to choral music. In fact, the highlight of his career at Yale University was his starring spot with Whiffenpoofs, an elite choir.

While his older brother headed to Texas to make his name in the oil patch, Bucky returned to Saint Louis, the Gateway City where the original Bush fortune had been built. He settled into a modest career as an investment banker and corporate consultant. Then, with his nephew poised to seize the White House, Uncle Bucky was offered a seat on the board of ESSI, a military support and defense electronics firm. ESSI’s company prospectus describes it as “a diversified supplier of high-tech, integrated military electronics, support equipment, and logistics services for all branches of America’s armed forces and certain foreign militaries”.

Shortly after the attacks of 9/11, ESSI positioned itself to win a series of lucrative Pentagon contracts that would catapult the diminutive firm into the top ranks of defense contractors. Within a few short months, the company’s shareholders were given the financial ride of their lives.

By the time of the Iraq war, ESSI was a brawny new player on the defense block. In the spring of 2003, ESSI acquired a military communications company called TAMSCO, whose prime activity was in developing military satellite terminals in the Gulf region and in US bases in Germany in anticipation of a US invasion of Iraq. After the ESSI buy-out, TAMSCO swiftly won contracts from both the Air Force and the Army for more than $90 million for the training of troops in the operation of the system and the installation of radar equipment in Kuwait.

Then Pentagon awarded ESSI a $49 million contract to remodel military trailers for use in Iraq.

In 2003, the Defense Department gave ESSI a huge deal to provide the Army with equipment to search for Iraq’s non-existent chemical and biological weapons. Part of this package included a $19 million contract to provide protective tents for US troops from chemical bombs. The tents didn’t arrive in Iraq until after it was evident to nearly everyone that the Iraqi military didn’t have access to such weapons. This didn’t stop the money from flowing into ESSI’s coffers and it didn’t stop ESSI’s executives from playing along in the grand charade. “The potential threat of our troops facing a chemical or biological attack during the current conflict in Iraq remains very real”, huffed Michael Shanahan, the company’s former chairman.

As the invasion transformed into a military occupation of Iraq, ESSI continued to pluck off sweet deals. In late 2003, the Coalition Provisional Authority (CPA), whose contracts passed across the Pentagon desk of arch-neocon Douglas Feith, awarded ESSI an $18 million deal to engineer a communications system for the CPA offices, barricaded inside Baghdad’s Green Zone.

Its executives openly clucked at the likelihood for protracted war. “The increasing likelihood for a prolonged military involvement in Southwest Asia by US forces well into 2006 has created a fertile environment for the type of support products and services we offer”, gloated Gerald L Daniels, the company’s Chief Executive Officer. Rarely has corporate glee over the prospects of war profiteering been expressed so brazenly.

But Daniels had a point. Even as things began to go sour for the US in Iraq, ESSI stood to make lots of money. One of its biggest no-bid contracts came in 2004 in the wake of mounting causalities in light-armored vehicles hit by roadside bombs. ESSI won a deal to upgrade the armor of thousands of vehicles in or bound for Iraq. The company’s annual report for 2005 forecast that ESSI might make as much as $200 million from this bloody windfall alone.

As the flood of new contracts poured in, ESSI’s stock soared. In January of 2005, it reached its all-time high of $60.39 per share. A few days before the stock hit this lofty peak, Uncle Bucky quietly exercised his option to sell 8,438 shares of ESSI stock. He walked away from that transaction with at least $450,000. The stock sale occurred a few days after ESSI announced that the Pentagon had awarded it $77 million in new contracts for the Iraq war and a few days before word leaked to the press that the company was under investigation for its handling of older Pentagon contracts. The timing of the trade was perfect.

In a February 2005 filing with the Securities Exchange Commission, ESSI discreetly disclosed to its shareholders that the inspector general of Pentagon had launched an inquiry into a series of contracts awarded to the company in 2002 for work on the Air Force’s troubled automated cargo loading machine called the Tunner.

While the company’s chief financial dismissed the probe as “routine” and assured investors that it would have “no effect” on ESSI’s fortunes, the Pentagon held to a more restrained assessment of the potential liability. Michael Wynne, acting undersecretary of Defense, said he had referred ESSI contracts valued at $158 million to the Pentagon’s inspector general because the deals “appear to have anomalies in them”. Many of the contracts were awarded on a no-bid basis and much of the probe appears to focus on the role Pentagon insiders played in steering the contracts to ESSI.

Much of the thrust behind ESSI’s sudden rise has been fueled by no-bid or source deals with the Pentagon. These no risk deals are part of a corporate strategy cooked up in part by none other than Uncle Bucky himself. In a profitable bit of self-dealing, ESSI hired its board member, Bucky Bush, as a consultant in 2002. Bush, who pulls in about $45,000 a year in director’s fees, was paid an additional $125,000 for his advice on ESSI’s buyout of other military contractors. The acquisition strategy outlined by Bush was to train the company’s appetite on the gobbling up of companies that held no-bid or sole source deals with the Pentagon.

In January 2005, ESSI spent $37.6 million to buy a New York electronics testing firm called Prospective Computer Analysis, Inc. In defending the purchase to shareholders, executives at ESSI emphasized that the company held “a lot of source contracts”.

A few months later, ESSI acquired Spacelink, Inc, a Virginia-based defense company, for $150 million. Spacelink, which supplies parts for military satellites and was poised to cash in on the $80 billion missile defense bonanza.

ESSI isn’t the only defense-oriented company to acquire the services of Uncle Bucky. The banker from Saint Louis has also been retained as a trustee for the global investment firm Lord Abbott, one of the primary financial underwriters of Halliburton. Lord Abbott is both one of the top ten shareholders in Dick Cheney’s former company, as well as one of its top mutual fund holders. It’s all in the family.

Uncle Bucky didn’t unload all of his ESSI stock. He still retained 45,000 shares valued at more than $2.5 million and used the profits from the sale to purchase a vacation home in Florida near his other nephew nourishing presidential ambitions, Jeb Bush.

Who knows if the Bucky will finally stop there?

(Bucky Bush died on February 27 2018)

This essay is excerpted from Grand Theft Pentagon (2005).

Copyright (c) 2009~2018 ZeroHedge.com/ABC Media, LTD

https://www.zerohedge.com/news/2018-12-05/how-poppy-bushs-brother-uncle-bucky-made-killing-iraq-wars

Facts that Privileged Americans Don’t Want Us to Know

by Paul Buchheit

commondreams.org (November 26 2018)


“Why should privileged Americans want to avoid this issue?” writes Buchheit. “Because they’re not about to make a financial commitment to the root cause of most of the violence in our country, which is the overwhelming stress and suffering brought on by deprivation in the richest nation in the world.” (Photo: flickr/tedollins32/cc)

Many of us are ill-informed about certain critical economic and social issues. The following facts should have been reported by the mainstream media, but unfortunately, most of that media is controlled by the very people who have reason to hide the facts.

Tax Haven Cheating is Much Costlier than the Annual Safety Net – But the IRS Budget Keeps Getting CUT

Offshore hoarding of private American wealth is estimated to be $3.3 trillion (four percent {1} of US $82 trillion {2} financial wealth).

The safety net costs about $400 billion {3} per year, or, including Medicaid, about $900 billion {4} per year.

Taking on the tax cheaters seems like an obvious response, instead of cutting the safety net. But the Internal Revenue Service (IRS) budget itself has been steadily cut. Amazingly, and perversely, the IRS, which could be recovering much of our hidden money, has seen its staff and budget slashed {5} fourteen to eighteen percent {6} since the recession.

Our Own Country is the World’s Second Biggest Tax Haven

While the privileged American tax cheaters are taking money from their own country, they’re not shy about taking from the rest of the world. According to the Financial Secrecy Index {7} of the Tax Justice Network {8}, the US is second only to Switzerland as a tax haven {9}. Their report states: “Financial secrecy provided by the US has caused untold harm to the ordinary citizens of foreign countries, whose elites have used the United States as a bolt-hole for looted wealth”.

Record Low Unemployment? Yes, Because One Hour of Work Counts as Employed

Part of that ‘booming’ economy is a low unemployment rate. As noted {10} recently, the Bureau of Labor Statistics {11} bases the official unemployment rate on employees “who did any work for pay or profit” during the week being surveyed. That includes {12} part-time workers {13} who are employed for just one hour {14} a week.

The unemployment rate also fails to include those who have given up {15} looking for work – four percent more {16} Americans than in the year 2000.

We’re Gradually Giving Away Our Country’s Wealth to the Children of the Rich

It’s not a Death Tax, it’s a Deadbeat Tax.

Anywhere from 35 percent {17} to 55 percent {18} of US household wealth is inherited. It’s going to get worse. A Boston College study {19} estimated that $59 trillion will be transferred from American estates by 2061. The study calls it “the greatest wealth transfer in US history”. That’s almost as much as the total financial wealth in the US today. But, as Robert Reich {20} notes, in 2014 only 1.4 out of every 1,000 estates owed any estate tax. So most of the money to be passed down from Baby Boomers will be going to kids who never earned any of it and won’t have to pay any taxes on it.

One might argue that the loss of all this tax revenue is a good thing, because then philanthropists will step up and fund the needs of society. Not much chance of that. The super-rich have little incentive to provide housing or education or infrastructure or clean water to poor neighborhoods. Here’s their incentive: Donor-Advised Funds {21} (DAFs). These “philanthropic” funds allow big tax write-offs, and the “donated” money can be invested and reinvested with little of it going to real causes. The report “Gilded Giving” by Inequality.org {22} states that

 

 

this charitable revenue can be warehoused, sitting for years or decades after a charitable deduction has been taken, before any significant payout is made to public nonprofits.

As We Keep Shooting Each Other, Our Leaders Keep Cutting Mental Health Care

Why should privileged Americans want to avoid this issue? Because they’re not about to make a financial commitment to the root cause of most of the violence in our country, which is the overwhelming stress and suffering brought on by deprivation in the richest nation in the world. According to {23} the National Institute of Mental Health, anxiety affects nearly one-third of both {24} adolescents and adults.

But instead of therapy, we use drugs to treat patients with mental problems, and as a result pharmaceutical companies make billions of dollars at the expense of incapacitated Americans. Incredibly, over 96 percent {25} of “last-resort” mental health hospital beds have been eliminated in the past sixty years. More incredibly, the 2019 budget for the Department of Health and Human Services includes a 21 percent decrease {26} from the 2017 level.

Most incredible of all is the hypocrisy accompanying this disdain for the needs of American adults and children. As when Donald Trump {27} says, “To every parent, teacher, and child who is hurting so badly, we are here for you whatever you need, whatever we can do to ease your pain”.

Links:

{1} https://eml.berkeley.edu/~saez/SaezZucman2016QJE.pdf

{2} http://publications.credit-suisse.com/index.cfm/publikationen-shop/research-institute/global-wealth-databook-2018-en/

{3} http://federalsafetynet.com/welfare-budget.html

{4} https://www.cbpp.org/research/long-term-fiscal-challenges/low-income-programs-not-driving-nations-long-term-fiscal?fa=view&id=3772

{5} https://www.cbpp.org/research/federal-tax/irs-funding-cuts-compromise-taxpayer-service-and-weaken-enforcement

{6} http://theweek.com/articles/748427/how-congress-pulling-irs-rich–siccing-poor

{7} https://www.financialsecrecyindex.com/PDF/USA.pdf

{8} https://www.financialsecrecyindex.com/introduction/introducing-the-fsi

{9} https://www.bloomberg.com/news/articles/2018-01-30/u-s-seen-as-world-s-second-biggest-tax-haven-after-switzerland

{10} https://www.commondreams.org/views/2018/06/18/jobs-everyone-fantasy

{11} https://www.bls.gov/cps/lfcharacteristics.htm#emp

{12} https://news.gallup.com/opinion/chairman/181469/big-lie-unemployment.aspx

{13} https://www.bls.gov/cps/cps_htgm.htm

{14} http://www.investinganswers.com/financial-dictionary/economics/unemployment-5162

{15} https://www.epi.org/publication/missing-workers/

{16} https://www.usatoday.com/story/money/2018/06/03/unemployment-can-go-lower/664879002/

{17} https://www.brookings.edu/blog/social-mobility-memos/2015/01/30/wealth-inheritance-and-social-mobility/

{18} http://www.piketty.pse.ens.fr/files/AlvaredoGarbintiPiketty2017.pdf

{19} https://www.bc.edu/content/dam/files/research_sites/cwp/pdf/Wealth%20Press%20Release%205.28-9.pdf

{20} http://www.commondreams.org/views/2015/03/31/rise-working-poor-and-non-working-rich

{21} https://www.theatlantic.com/technology/archive/2018/05/silicon-valley-community-foundation-philanthropy/560216/

{22} https://inequality.org/wp-content/uploads/2018/11/Gilded-Giving-2018-November-2018-FINAL.pdf

{23} https://www.hcp.med.harvard.edu/ncs/

{24} https://www.nytimes.com/2017/10/11/magazine/why-are-more-american-teenagers-than-ever-suffering-from-severe-anxiety.html

{25} http://www.treatmentadvocacycenter.org/evidence-and-research/learn-more-about/3696

{26} http://www.mentalhealthamerica.net/blog/how-trumps-budget-will-affect-people-mental-health-conditions

{27} https://www.npr.org/sections/thetwo-way/2018/02/15/586095437/trump-calls-for-mental-health-action-after-shooting-his-budget-would-cut-program

https://www.commondreams.org/views/2018/11/26/facts-privileged-americans-dont-want-us-know